Indian Rupee: Inflation risks broadening – Societe Generale

Societe Generale economist Kunal Kundu expects India’s August Consumer Price Index (CPI) inflation to rise to around 4.8% year-on-year from 4.4% in July, the highest reading under the new CPI series. The report highlights persistent food and fuel inflation, rising input costs and signs of broader cost pass-through, suggesting India’s inflation dynamics are becoming less benign and warrant close RBI and market attention.

Inflation pressures seen broadening

"We expect India's CPI inflation to rise to around 4.8% yoy in August 2026, up from 4.4% in July, marking the highest reading under the newly launched CPI series. If realised, this would represent the third consecutive month of inflation above the RBI's 4.0% target, further reinforcing the view that inflationary pressures are no longer confined to a few volatile categories but are gradually becoming more broad-based."

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"With input price pressures remaining elevated and little evidence of relief from global commodity markets, the risk of broader pass-through into consumer prices appears to be rising."

"Food inflation is likely to have exceeded 6.0% yoy in August and should remain the single largest contributor to headline CPI. Available price trends suggest continued pressure from categories such as sugar, cereals, milk, eggs, edible oils and selected vegetables."

"A second source of upward pressure is likely to come from fuel inflation. Elevated global energy prices, coupled with the lagged effects of earlier domestic fuel price adjustments, suggest that the fuel basket should continue to exert upward pressure on headline inflation. Survey-based expectations also point towards firmer fuel inflation in August relative to July."

"Taken together, the August CPI print is likely to signal that India's inflation dynamics are becoming less benign. Food inflation remains elevated, fuel inflation continues to firm, and early signs of broader cost pass-through are beginning to emerge. A print around 4.8% yoy would not only mark a new high under the revised CPI series but would also reinforce concerns that inflationary pressures are gradually broadening beyond a narrow set of categories."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)